Fin-tech thrusts in financial inclusion

December 23, 2019

The easiest way to make money is to create something of such value that everybody wants and go out and give and create value. The money comes automatically.

-- Jordan Belfort, The Wolf of Wall Street
    
Full inclusion requires the widest playing field that can accommodate the most number of players.

The Bangko Sentral has thus vowed to further expand the scope of its financial inclusion program after it was named as one of the best in the world.

The BSP made the commitment after the Global Microscope 2019, a publication of the Economist Intelligence Unit, ranked the Philippines as the 5th best among 55 countries worldwide and 1st in Asia, along with India, in terms of top countries that promote financial inclusion.

Global Microscope identified the country’s efforts on five standard categories-- the government stability and support, stability and integrity, products and outlets, consumer protection, and infrastructure.

“The country also retained its top standing in credit portfolios for middle- and low-income customers, market-entry, and ongoing requirements for banks,” the publication said.

It also noted measures to provide an environment that expand the coverage of digital financial services, particularly the National Strategy for Financial Inclusion, which is under the guidance of the inter-agency Financial Inclusion Steering Committee.

The BSP said it was “delighted” with the recognition.

It said the country’s “top standing in Asia reflects the BSP's thrust of promoting the adoption of financial services through compelling use cases for digital payments”.

“We are especially proud of this recognition as it provides an impetus for us to further deepen the foundations of financial inclusion through digital means in 2020, with the overall goal of providing transactions that are relevant and valuable to many Filipinos,” it added.

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Unimaginable, unthinkable – in the old days, that is.

Ped Xing is referring to the use of non-traditional assets as loan collaterals.

Old-school or classical banking simply could not accept them because doing so goes against the grain of the basic principle of lending against security.

The fundamental tenet is that you lend money only to people or entities that have cash or other assets that can quickly be turned into cash.

Now, if a borrower has that cash or other such “liquid” assets, why would they turn to banks for loans in the first place?

Does it make sense to you?

Kaya nga nangungutang eh kasi walang kwarta, pera, salapi, money, dough dinero, lucre.

But gone are those difficult, ridiculous, oppressive days.

With the passage of Personal Property Security Act (Republic Act 11057) and the recent issuance of its implementing rules and regulations, Rizal Commercial Banking Corp.  took the lead in launching ASEAN’s first mSME Opportunity Fund to jump- start the banking and financial technology industry in creating markets and encouraging the private sector to use movable assets as collateral.

PPSA allows the use of movable collaterals, such as account receivables, crops, farm equipment, warehouse receipts, bank accounts, and even future harvest.  

The open-ended Fund would provide alternative funding for capital and operational requirements of MSMEs through the sale and purchase of invoice receivables and other movable assets registered by invoice receipts, certificates, or contracts as defined by the Act.

The Fund would be covered by a sovereign guarantee through PhilGuarantee to ensure the quality of underwriting and receivables assets.

The pilot would initially cover Acudeen Technologies Inc., a receivable factoring exchange that facilitates the buying and selling of MSME invoices through its digital platform.  

Recently, two multi-billion dollar factoring banks -- Deutsche Factoring Bank and Taishin Bank -- have signed agreements with Acudeen to provide guarantees on export related receivables in the exchange.

The deal made it possible for the tech firm to attract more financial institutions like RCBC to look into the opportunity in the movable asset space.

The signing of the Memorandum of Understanding and the launching of the Fund was held at the recent 7th Financial Infrastructure Development Network  Forum. FIDN is a multi-sectoral platform for promoting initiatives to make financial services in the region more accessible, especially for MSMEs.

“This pioneering initiative promotes innovation by giving all stakeholders the opportunity to offer creative solutions to sustainability challenges, especially in empowering our entrepreneurs in exponentially growing our MSME sector,” RCBC president and chief executive officer Eugene Acevedo said.

“The next immediate step is clear: To get the collateral registry operational as soon as possible. Then, quickly build up a real movable asset finance market with a diversified range of products and with as many players as possible from both banks and non-banks. A substantive movables finance market will mean, for example, that at least 30% of all commercial lending in the Philippines involve movable assets,” RCBC executive vice president and chief innovation and inclusion officer Lito Villanueva said.

“The entry of RCBC proves that we have put to life a bank-grade machinery that is instrumental in putting PPSA at work, and in really helping out our entrepreneurs in the country. We are expecting two more major banks to participate in the first half of 2020,” Acudeen founder and CEO Magellan F. Fetalino said.

“With this Fund, the local Fintech companies are expected to grow its operations within the next few years, making its promise of liquidity for domestic and export invoice sellers who are mostly SMEs,” FinTech Alliance executive director Gay Santos said.

“We recognize the immense potential and unique challenges of mSMEs and BSP is set on strengthening the country's financial infrastructure, supporting innovation, and bridging the information gap. To build the foundation for a robust financial infrastructure, we work in close coordination with government agencies and partners in development,” Bangko Sentral Gov. Benjamin Diokno said.

“We really need to leverage technology to help our businesses, including mSMEs, thrive, compete, and grow while implementing regulations that reduce financial risks and boost confidence for mSME finance,” Finance Undersecretary and chief economist Gil Beltran said.  

Beltran, BSP’ Learning and Inclusion Advocacy Managing Director Pia Roman-Tayag, Department Trade and Industry’s Director for the Bureau of SMEs Jerry Clavesillas , Fintech Alliance executive director and financial inclusion advocate Griselda Santos, Philguarantee president and CEO Albert Pascual, and Securities and Exchange Commission commissioner Javey Paul Francisco.

Agriculture and MSME sectors form the backbone of the Philippine economy, with the latter accounting for 99.6 percent (911,768) of the country's enterprises and generate 61.6 percent of employment.

Access to finance has been among the challenges faced by Micro-,Small and Medium Enterprises and the agriculture sector because banks require hard collateral, which these borrowers do not have.

Despite having considerable growth prospects and being a source of livelihood for millions of Filipinos, the MSME sector has not realized its potential.

MSMEs only account for 3.32 percent of the country's gross domestic product, while their gross value added sits at 35.7 percent.

Capital investment remains low, with agriculture and MSME loans in the banking system accounting for only 6.2 percent and 9.2-percent share, respectively, in total business loans.

This initiative hopes to address the mSME funding gap in the Philippines worth $2 billion as of 2017 according to r IFC Enterprise Finance Group.

Behold God’s glory and seek His mercy.

Pause and pray, people.